Free AIOU Solved Assignment Code 438 Spring 2024

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Course: Principles of Accounting (438)
Semester: Spring, 2024
ASSIGNMENT No. 1

Q.1 Define the term Account and describe the various classifications of Accounts in detail.

Accounts are classified using two approaches – traditional approach (also known as British approach) and modern approach (also known as American approach). On this page, we shall briefly discuss the classification of accounts under both the approaches.

According to modern approach, the accounts are classified as asset accounts, liability accounts, capital or owner’s equity accounts, withdrawal accounts, revenue/income accounts and expense accounts.

1. Asset accounts:

Assets are things or items of value owned by a business and are usually divided into tangible or intangible. Tangible assets are physical items such as building, machinery, inventories, receivables, cash, prepaid expenses and advance payments to other parties. Intangible assets normally include non-physical items and rights. Examples of intangible assets include goodwill, trademarks, copyrights, patent rights and brand recognition etc.

A separate account for each tangible and intangible asset is maintained by the business to record any increase or decrease in that account.

2. Liability accounts:

Liabilities are obligations or debts payable to outsiders or creditors. The title of a liability account usually ends with the word “payable”. Examples include accounts payable, bills payable, wages payable, interest payable, rent payable and loan payable etc. Besides these, any revenue received in advance is also a liability of the business and is known as unearned revenue. For example, a marketing firm may receive marketing fee from its client for the forthcoming quarter in advance. Such unearned revenue would be recorded as a liability as long as the related marketing services against it are not provided to the client who has made the advance payment.

3. Capital or owner’s equity accounts:

Capital is the owner’s claim against the assets of the business and is equal to total assets less all liabilities to external parties. The balance in capital account increases with the introduction of new capital and profits earned by the business and decreases as a result of withdrawals and losses sustained by the business.

In sole proprietorship, a single capital account titled as owner’s capital account or simply capital account is used. In partnership or firm, each partner has a separate capital account like John’s capital account, Peter’s capital account etc. In corporate form of business there are many owners known as stockholders or shareholders and the title capital stock account is used to record any change in the capital.

4. Withdrawal accounts:

Withdrawals are cash or assets taken by a business owner for his personal use. In sole proprietorship and partnership, an account titled as drawings account is used to account for all withdrawals. In corporate form of business withdrawals are more systematic and usually termed as distributions to stockholders. The account used for recording such distributions is known as dividend account.

5. Revenue or income accounts:

Revenue is the inflow of cash as a result of primary activities such as provision of services or sale of goods. The term income usually refers to the net profit of the business derived by deducting all expenses from revenue generated during a particular period of time. However, in accounting and finance, the term is also used to denote all inflows of cash resulted by those activities that are not primary revenue generating activities of the business. For example, a merchandising company may have some investment in an oil company. Any dividend received from oil company would be termed as dividend income rather than dividend revenue. Other examples of income include interest income, rent income and commission income etc. The businesses usually maintain separate accounts for revenues and all incomes earned by them.

6. Expense accounts:

Any resource expended or service consumed to generate revenue is known as expense. Examples of expenses include salaries expense, rent expense, wages expense, supplies expense, electricity expense, telephone expense, depreciation expense and miscellaneous expense.

Traditional approach

According to traditional approach, the accounts are classified into four types – personal accounts, real accounts, nominal accounts, and valuation accounts. A brief explanation of each is given below:

1. Personal accounts:

The accounts related to real persons and organizations are classified as personal accounts. Examples of personal accounts include John’s account, Peter’s account, Procter and Gamble’s account, Vibrant Marketing Agency’s account and City bank’s account etc. The business keeps a separate account for each individual and organization for the purpose of ascertaining the balance due from or due to them.

2. Real accounts:

Real accounts are accounts related to assets or properties (both tangible and intangible) owned by a business enterprise. A separate account for each asset is maintained to account for increases and decreases in that asset. Examples of real accounts include cash account, inventory account, investment account, plant account, building account, goodwill account, patent account, copyright account etc.

3. Nominal accounts:

The accounts related to incomes, gains, expenses and losses are classified as nominal accounts.These accounts normally serve the purpose of accumulating data needed for preparing income statement or profit and loss account of the business for a particular period. Examples of nominal accounts include sales account, purchases account, wages account, salaries account, interest account, rent account, gain on sale of fixed assets account and loss on sale of fixed assets account etc.

4. Valuation account:

Valuation account (also known as contra account) is an account used to report the carrying value of an asset or liability in the balance sheet. A popular example of valuation account is the accumulated depreciation account. Companies maintaining fixed assets in the books of accounts at their original cost also maintain an accumulated depreciation account for each fixed asset. In balance sheet, the balance in the accumulated depreciation account is deducted from the original cost of the asset to report it at its book value or carrying value. Another example of valuation account is allowance for doubtful accounts. In balance sheet, the balance in allowance for doubtful accounts is deducted from the total receivables to report them at their net realizable value or carrying value.

AIOU Solved Assignment Code 438 Spring 2024

Q.2 Mr. Noman started a sole proprietorship business. The business is newly established and Mr. Noman hired an accountant for keeping the journal updated. Suppose you are the Accountant of Mr. Noman’s business, prepare the journal book for the month of December, 2020. You are also required to post journal entries into the ledger and prepare the trial balance. Detail of the transactions during December, 2020 are given as follows:

Dec. 1. Mr. Noman commenced business with Cash of Rs. 2,200,000/- Building Rs.4, 500, 000/-

Purchased Goods with cash Rs. 300,000/-
Purchased furniture from Miss Hareem Rs.250, 000/-
Sold goods to Mr. M. Naeem Rs. 120,000/-
Goods returned to Miss Hareem Rs.10, 000/-
Stationery Purchased Rs.10, 000/-
Returned goods to Mr. M. Naeem Rs.12, 000/-
Utility bills paid for the month Rs.70, 000/-
Rent paid for the month Rs.50, 000/-

Date	Journal	Debit	Credit
01 Dec	Cash (Nouman) Cash	2300000	2300000
01 Dec	Building Cash	4500000	4500000
02 Dec	Good (Purchased) Amount	300000	300000
07 Dec	Furniture (Purchased) Cash (Hareem)	250000	250000
08 Dec	Sold (Good) Credit (Naeem)	120000	120000
15 Dec	Good (Return) Credit (Nouman)	10000	10000
18 Dec	Stationary (Purchased) Amount	10000	10000
25 Dec	Goods (Return) Paid	12000	12000
26 Dec	Utility Bills Paid	70000	70000
31 Dec	Rent (Month) Paid	50000	50000

AIOU Solved Assignment 1 Code 438 Spring 2024

Q.3 i. Define journal and also explain in detail the objective and importance of journal in daily life of business.

The journal is a memorandum or first record in the process of recording business transactions that occurred before posting to the ledger.
The journal records all business transactions according to the date of the Journal showing the chronological records of all business transactions.
The journal can reduce the error and omission of transaction records or incomplete transaction records. The journal functions as a control system.
Purchase journals record purchases of merchandise on credit based on the original invoice.

Sales Journal

Sales Journal records the sales of merchandise on credit based on invoice copy.

Purchase Return Journal/Outward

The Purchase Return Journal records:
the return of trade goods to creditors.
allowances received from creditors/suppliers for the return of empty containers.
The notes in this journal are based on the original credit note received from creditors.
If there is a discount at the time of purchase of goods, the same discount rate should be deducted from the list price when the item is returned to the creditor.
No description is required for the Purchase Return Journal.

Sales Return Journal/Inward

Sales Return Journal records:
the return of merchandise from debtors.
The allowance is given to the debtor for the return of empty containers.
The notes in this journal are based on a copy of a credit note sent to the debtor.
If there is a discount on the sale of goods to the debtor, the same discount rate should be deducted from the list price when the debtor returns the goods to the business.
No description is required for the Sales Return Journal.

AIOU Solved Assignment 2 Code 438 Spring 2024

What is meant by non- trading concerns? Differentiate between receipts & payments account and income & expenditure account.

Individuals or institutions with activities other than trade are known as non-trading concerns. Examples of nontrading concerns are clubs, hospitals, libraries, colleges, athletic clubs etc.

These institutions are started not for carrying on a business and making a profit but for some charitable, religious or similar purpose. Their income, which is derived from donations, subscriptions, entrances fees etc., is spent on the objects for which they are started.

Non-trading concerns usually maintain their accounts by the double entry system and periodically prepare their final accounts for the submission to their members and subscribers. The method of preparing final accounts by non-trading concerns is different than trading concerns.

The method of preparing final accounts by non-trading concerns is different than trading concerns. As these concerns do not deal in any goods like trading concerns, so they cannot prepare a trading and profit and loss account? At the end of the year they make out an account called an Income and expenditure account and balance sheet. The Income and expenditure account serve the same purpose as the profit and loss account in the case of trading concerns and is made out exactly in the same manner.

Usually the non-profit making institutions do not maintain a full set of books but merely a cash book in which all receipts and payments are entered. At the end of the year the cash book is summarised under suitable heads and the summary thus prepared is called a Receipt and Payment Account. In order to know the result of the year’s working it should be converted into Income and expenditure account.

Receipt and payment account is a mere summary of cash book for a year. It begins with the cash in hand at the commencement and ends with that at the close of the year. Similarly to cash account, in receipts and payments account receipts are shown on the debit side while payments are shown on the credit side.

Receipt and payment account is a mere summary of cash book for a year. It begins with the cash in hand at the commencement and ends with that at the close of the year. Similarly to cash account, in receipts and payments account receipts are shown on the debit side while payments are shown on the credit side, without any distinction between capital and revenue. Moreover, it does not include an unpaid expenditure not any unrealized income relating to the period under review and so fails to reveal the financial position on the concern.

The following are the main differences between receipts and payments account and income and expenditure account:
1. Nature

Receipts and payments account is a summary of cash transactions for a period and it is a real account. Income and expenditure account is a summary of expenditure and income like trading and profit and loss account and it is a nominal account.

Objective

Receipts and payments account is prepared to show cash and bank receipts and payments during the period to derive closing balance of cash and bank. Income and expenditure account is prepared to show the net result of the operation during the period to derive surplus or deficit.

Recording

All cash and cheque receipts are recorded on debit side of receipts and payments account where as all cash and bank payments are recorded on credit side. In income and expenditure account all expenditure of revenue nature are recorded on debit side and all incomes of revenue nature are recorded on credit side.

Capital And Revenue Items

There is no distinction between capital and revenue receipts and payments in receipts and payments account. All expenses and incomes of revenue nature are recorded on accrual basis in income and expenditure account.
5. Contents

Receipts and payments account contains only cash and bank transactions. Income and expenditure account contains both cash and non-cash expenses and incomes of revenue nature.

Balance Sheet Requirement

Receipts and payments account is not required to prepare balance sheet. Income and expenditure account is required to prepare balance sheet.

Adjustments

No adjustments are required in receipts and payments account. In income and expenditure account adjustments are made because it is prepared on accrual basis.

AIOU Solved Assignment Code 438

Q.4 Mr. Abdullah purchased a second hand machine on 1^st December 2015 for Rs. 407,000 and immediately spent Rs. 23,000 on its repairs and Rs. 11,000 on its erection. On 1^st July 2016 it purchased another machine for Rs.110, 000.

Depreciation was provided machinery @ 10% p.a. on the original cost annually on 31^st December. In, 2017, the company changed the method of providing depreciation and adopted the written down value method, rate of depreciation being 15% p.a. Give an account for four year commencing from the acquisition of first machine. Compute to nearest paisa.

Note: (Change method during year straight line to diminishing balance method)

At 10%

Date	Particulars	J.F.	Amount (Rs)	Date	Particular			J.F.	Amount (Rs)
2015-16				2017
Dec.01	Bank (M1)		407,000	Dec. 31	Depreciation
July 01	Bank (M2)		110,000		M1		40,700
					M2 (6 months)		5,500		46,200
				Mar.31	Balance c/d
					M1	366,300
					M2 (6 months)	104,500			470,800
			517,000						517,000

At 15%

Date	Particulars	J.F.	Amount (Rs)	Date	Particular			J.F.	Amount (Rs)
2015-16				2017
Dec.01	Bank (M1)		407,000	Dec. 31	Depreciation
July 01	Bank (M2)		110,000		M1		61050
					M2 (6 months)		8250		69,300
				Dec.31	Balance c/d
					M1	345,950
					M2 (6 months)	101,750			447,700
			517,000						517,000

Repair and renewal made on December 31, 2017 will not be recorded in Machinery Account because, this repair was made after putting the Machinery into use.

AIOU Solved Assignment Code 438 Autumn 2024

Q.5 Mr. Zubair is running a sole proprietorship business. During the month of August 2016, following transactions were recorded, you are required to enter the transaction in three column Cash Book.

August 2016

2: Cash in hand Rs. 300,000/-

2: Cash at Bank Rs. 232,500/-

3: Paid salaries Rs. 5,000/-

5: Purchased Machinery Rs. 135,000/-

8: Cash sales Rs. 67,500/-

12: Received a cheque from Mr. Farooq for Rs. 154,000 in full settlement of his account Rs. 155, 000/- and deposited into the bank.

15: Payment to Mr. Furqan cash Rs. 75,000/- and a cheque for Rs. 73,500 in full settlement of his account 150,000/-

17: Cash purchases Rs. 25,500/-

20: Electricity bill paid by Bank Rs. 15000/-

25: Received interest from Bank Rs. 27,000/-

25: Cheque received from Mr. Noman Rs. 73,500 but full settlement of his account Rs.74, 000/- and deposited into Bank.

25 Mr. Noman cheque was dishonored.

25: Cash deposited into Bank Rs.30,000/-

28: Received a cheque from Mr. Asif Rs. 60,000/- but not deposited into bank.

29: Mr. Asif cheque’s deposited into bank.

29: Paid Mr. Kaleem by a cheque Rs. 70,000/-

30: Cash drew from Bank for office use Rs. 10,000/-

31: Cash drew from Bank for personal use Rs. 7,500/

Free AIOU Solved Assignment Code 438 Spring 2024